A Rehabilitation of the Model of Effective Demand from Chapter 3 of Keynes's <i>General Theory</i> (1936)

The model of effective demand from Keynes's General Theory was rendered graphically by such post-Keynesian scholars as Chick (1983), Davidson (2011), Davidson and Smolensky (1964), and Weintraub (1961). It has been criticized in detail by Patinkin (1976, 1982) and (implicitly) by the whole development of mainstream economics in the past seventy-five years. This paper shows that a version of the model can be rehabilitated simply by picking up on the idea from Kaldor (1983, 1985) that the underlying assumption should be a world of "imperfect competition," rather than "perfect competition." Samuelson (1996) later claimed that the Keynesian approach had rested all along on "imperfectly competitive micro-foundations," but seemed to make no attempt to demonstrate this earlier (e.g, in Samuelson 1964).